On January 4 2012 Harley Inc acquired 40 of the outstanding

On January 4, 2012, Harley, Inc. acquired 40% of the outstanding common stock of Bike Co. for $2,400,000. This investment gave Harley the ability to exercise significant influence over Bike. Bike\'s assets on that date were recorded at $10,500,000 with liabilities of $4,500,000. There were no other differences between book and fair values. During 2012, Bike reported net income of $500,000. For 2013, Bike reported net income of $800,000. Dividends of $300,000 were paid in each of these two years. What was the reported balance of Harley\'s Investment in Bike Co. at December 31,2013? O $2.400000. O$2,500,0oo O $2.680,000o O $2,480,0o0 $2.600,00o.

Solution

Harly can report investment at equity method

Answer is E. $2,600,000

Total assets of Bike co.	$ 10,500,000
Less: Total liabilities of Bike co	$ (4,500,000)
Stockholders equity	$    6,000,000
Add: Current year income	$        500,000
Total stockholders equity	$    6,500,000
Harly\'s percentage of interest	40%
Reported balance of Harly\'s investment in Bike ($6,500,000*40%)	$    2,600,000